California overcomes oil opposition to approve the first US carbon-trading scheme

The state, the eighth largest economy in the world, hopes to create the second biggest carbon market after Europe when it opens in 2012

California has given the go-ahead to a landmark emissions trading scheme with officials saying the US state needs to 'move away from fossil fuels and to cleaner energy sources'.

California's cap-and-trade scheme will set a statewide limit on greenhouse gas emissions, with industry given allowances for what it may emit. Companies exceeding those allowances will be required to buy extra polluting credits from the marketplace. Anyone emitting less than their permitted allowance can sell their extra allowances.

Over time, state officials plan to reduce the number of allowances available to encourage industry to look for ways of reducing its emissions and switching to renewable alternatives. Officials said the scheme would 'accelerate progress towards a clean-energy economy'.

While nationally the US has failed to pass climate legislation to limit greenhouse gas emissions, California has already been taking a lead. The Global Warming Solutions Act, signed in 2006, requires the state to reduce emissions to 1990 levels by 2020, provide incentives for renewable energy and introduce a cap-and-trade scheme.

Industry had opposed its plans for an emissions-trading scheme, however. A recent campaign, nicknamed the 'dirty energy ballot initiative', to overturn the law failed despite heavy financial backing by Texas oil companies (Valero and Tesoro) that operate huge, polluting refineries in the state.

Fred Krupp, president of the Environmental Defense Fund (EDF), which helped oppose the campaign, said California was now 'leading America's charge to fight climate change' by capping pollution and funding cleaner technologies.

'California is turbo-charging its already fast-growing clean-energy economy by creating incentives and a market for pollution-reducing technologies,' he said.